Purchasing Innovation V: Sourcing the New Organization

Browsing through the economist recently, I rediscovered an article originally published in January, entitled The New Organisation that I believe to be worth a second read.

It starts of by saying that “the way people work has changed dramatically, but the way their companies are organized lags far behind“.

Fifty years ago, William Whyte, an editor at Fortune magazine, wrote a book entitled “The Organisation Man” that defined the nature of corporate life for a generation and described how America had recently turned into a nation of employees who “take the vows of organisation life” and who had become “the dominant members of our society“. The article was praised by the New York Times for recognising that “the entrepreneurial scramble to success has been largely replaced by the organisational crawl“.

Fast forward to now, and the organisation man seems almost extinct. Once upon a time, IBM was the perfect home for “organisation man“. All the managers wore only dark blue suits, white shirts, and dark ties as symbols of their lifetime allegiance to Big Blue. But today, 50% of IBM’s employees have worked for the company for under five years, 40% of its 320,00 employees are “mobile”, and about 30% are women. It has transitioned from a supplier of electronic and computer products to a conglomeration of transient suppliers of services. (Literally, see my first post in this series that noted IBM, once one of the biggest producers of computer hardware, now makes 50% more on its services then its hardware and that its global services accounted for 47% of revenue in 2005.)

This transformation has been brought about by the variety of changes in the environment in which business operates. Compared to the organization of 50 years ago, today’s organization is global, outsourced, and awash in modern communications technology. It’s employee is the “networked person“, a new species that can be observed in airport lounges, fast inner-city trains, and wi-fi Starbucks. Networked person is always on the move with laptop in case, mobile phone on belt, and blackberry in hand (or crackberry, as the case may be).

Whereas organisation man was cautious about networking and sharing his knowledge, which was his power, networked person feeds off of information exchange and constant communication. Organisation man lived in a highly structured world where lines of authority were clearly drawn on charts and decisions made on hide but networked person makes her own decisions all the time, guided by the knowledge base she has access to. A famous 1967 study by Stanley Milgram suggested that there were at most “six degrees of separation” between any two people in America. However, a more recent work along similar lines on the small world phenomenon suggests that the number may have fallen to 4.6. (See The Small-World Phenomenon: An Algorithmic Perspective by Jon Kleinberg and The Small World of Software Reverse Engineering by Ahmed E. Hassan and Richard C. Holt for some interesting perspectives, along with the 1998 Nature paper by Duncan J. Watts & Steven H. Strogatz entitled Collective Dynamics of ‘small-world’ networks that inspired a new series of research in multiple domains.)

And yet, despite the dramatic evolution of organisation man into networked person, the organisation in which he lives has changed considerably less then expected. An article in the McKinsey Quarterly last year by Lowell L. Bryan and Claudia Joyce entitled The 21st-Century Organization argued that “today’s big companies do very little to enhance the productivity of their professionals. In fact, their vertically oriented organisational structures, retrofitted with ad hoc and matrix overlays, nearly always make professional work more complex and inefficient.”

The article points out that the main failing of the classic structure is that it impedes the spread of knowledge and limits the economies of scale that could otherwise be reaped. Ideas and commands move up and down from headquarters to the units, leading to the creation of vertical “silos” with very little communication between them. Moreover, the “matrix overlay” approach that attempts to take differing national markets into account by superimposing geographical silos that cut across traditional business units does not fix the problem. After all, the matrix structure has been called “one of the most difficult and least successful organisational forms“.

However, like many articles, it stops after it has thoroughly described the problem, simply noting that there is a need for a new kind of organization that is more appropriate to modern working methods. Although I will not claim to be an organizational expert and put forth a new structure herein, I will make the claim that it is the world class sourcing organization that will drive corporate transformation into the next millennia.

Why? World class sourcing organizations follow world class best practices. These best practices involve forming interdisciplinary teams that involve at least one key stakeholder from every unit of the business to make sure that the strategies they use and the buys they make are best for the business overall. World Class Sourcing teams not only cross, but eliminate organizational boundaries – and they do it for the good of the business. They are built on collaboration and knowledge sharing, everything the networked person believes in.

Furthermore, as Jason Busch, co-founder of Azul Partners and blogger extraordinaire of Spend Matters points out in a recent presentation, found here, in the future “procurement will have a dotted line to every area of the business. Procurement will increasingly be the road that bridges all aspects of the organization.” We may not know what the future will hold for the monolithic corporations of the past, but you can be sure on one thing, sourcing will lead the way.

For more ideas on how to innovate your purchasing – and your sourcing – see the Next Generation Sourcing wiki-paper over on the e-Sourcing Wiki.

Still quiet here.sas

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